In the early days of the App Store it was easy for developers to enter the market and make a lot of money with a paid app. There were many iPhone users and apps were hot and nearly anyone who made an app made at least a small fortune. Thus began the craze where everyone and everything needed an app. After a few years of this trend the App Store has become more saturated now. Any new app that comes to the store will probably have one or more competitors. This is the new reality.
The psychology of the app consumer has also changed. The buying behavior of app buyers used to be “Wow there is an app for that, isn’t that great! Sure I’ll buy it for $0.99!”. Apple even built an entire advertising campaign: “There’s an app for that”. Users were generally happy to find an app or two for their purpose and sometimes they might buy them both just to try them and know they had tried all that was available. However, the world has moved on and now that the app store is more saturated the consumer behavior is changing. Nearly every app will have a few near or direct competitors. User behavior is now based on the idea that “There are several apps I can choose from so I’ll try a few free ones first”. The user will then exhaust all of the free apps and if none of those meets their needs then only at that point will they consider a paid option. If you are a developer trying to make money from a paid app, the user has probably exhausted all of the free choices before they will even look at your app. The model has changed because the consumer has so many choices.
In-App Purchase lets a customer try the app for free and at some point they will be prompted to pay. This is a very different buying behavior for the customer. The new habit will be downloading the app for free, trying it out and then being prompted to pay to continue using or to unlock features. At this point they are already hooked on this particular app and it will be a lot of work to leave that app and find another one which may or may not suit their needs. So the decision comes down to “do I want to pay $0.99 or do I want to spend the next 15 minutes of my life trying to find another app?”. The decision will usually be to pay the $0.99 and just keep using the app they are already hooked on. This is a good outcome for both the developer and consumer because the developer got paid for his work and the consumer got a product they liked. This scenario also rewards good work by the developer as consumers will tend to choose the app that gives a good experience and then pay for it. If the app isn’t good it will be in the list of apps that were discarded in the initial trial period. This is also another reason Native apps are replacing Web Apps because they offer a higher quality experience but that is a different blog post.
Apple recently announced that 96% of the top grossing apps on the App Store use In-App Purchase to make their sales. This is up from 80% in 2012. These numbers indicate that the ship has sailed and In-App purchases are really the only way to make money on the App Store (I do add the caveat that for certain things like magazine periodicals, subscriptions may be a better option). It seems clear at some point that ‘pay up front apps’ may be discontinued all together and isn’t something we recommend our clients. It seems that in-App purchase is really the only way to go if you intend to make money selling your app. Perhaps in a few years this trend will move onto a different model. However, for now In-App purchase is here to stay and it isn’t going away and it is really the only way to make money on the App Store for the majority of the developers out there.
The Sparrow Problem
Yep, paid apps are dead
In-App Purchases Take Over App Revenues